10 Milestones to Financial Independence
Last Modified on
Financial independence is a dream for many. While everyone aspires to be financially independent, it can sometimes be hard to achieve it. As you go through life, your responsibilities change. Your definition of financial independence in your 20s could be to pay off your student loans. In your 30s, it could be to buy a car. In your 40s, it could be to buy a new house. With dynamic needs, you may easily get lost on the journey to financial independence. However, some critical milestones can help you stay focused and also celebrate the small victories along the way.
Here are 10 milestones to financial independence that you can aspire to cross.
1. Paying Off your Student Loans
Most people begin their careers with a hefty burden of student loan debt. Although you can select a longer time frame to pay back your loan, you may end up paying more due to the interest accrued over time. Moreover, the fact that you have a loan over your head can disrupt your current budgeting needs. It helps to get rid of such loans at the earliest. This also allows you to concentrate on other goals and puts you one step ahead in your journey towards financial freedom.
2. Setting Up an Emergency Fund
The second milestone to financial independence is having an adequate emergency fund. This fund can be used if you find yourself out of a job or are unable to earn a stable income. Keeping funds that are equivalent to 6 to 8 months of your living expenses can help you survive in urgent times. This fund can also be used to cover unexpected medical costs or renovation and repair expenses. When you set up an emergency fund, remember to pick an instrument that allows liquidity and good returns. This way, your money can grow with time and also be readily available in case of an immediate requirement.
3. Buying a Car
Owning a car is not just a matter of convenience but also a part of many people’s wish-lists. Car ownership brings you one step closer to your dreams and allows you to live a comfortable life. This can be a major milestone in your journey to financial independence and growth. However, while you cross this milestone, make sure to do so with careful planning. If you take a loan, you may need to create a monthly budget that does not come in the way of your other expenses. It is also essential to pick a loan only if you can pay it back without any major hassles and compromises.
4. Purchasing a House
Just like a car, a house is a vital part of your life too. A house is not just a possession but also an asset. Its value can increase over time. You can use it to secure a loan or sell it at a profit to earn money in the future. However, while you hope to reach this milestone, try to look at all aspects of buying a house. The area, type, size, etc. can affect a property’s worth. Assessing all these factors can help you pick a suitable home that can accommodate you and your family as well as be a significant asset in your portfolio.
5. Clearing all Debts
When you go through life, you are bound to create newer forms of debts. Most people buy cars, properties, and other expensive possessions on loan or credit cards. While the increasing list of purchases gives you a sense of accomplishment, it is also necessary to keep clearing the debt that you accumulate with them. Mortgage, credit card bills, loans, etc. require careful planning. Setting up a realistic timeline can be a good strategy to pay back what you owe.
6. Arriving at a Net Worth
Although this is a subjective figure, it is a helpful goal to ensure that you stay on the right track. Many experts suggest having a net worth of $1,00,000 or $5,00,000. However, this amount entirely depends on the nature of your job, financial responsibilities, lifestyle, and age. Based on these factors, you can set a suitable target for yourself and try to achieve it by a predetermined time. Arriving at this milestone will not only bring you mental peace but will also ensure financial flexibility and liquidity for future needs.
7. Building a Retirement Portfolio
One of the most important components of financial independence is having a robust retirement plan. There are many aspects that need attention and strategizing when it comes to retirement planning. You will likely need a health plan, an emergency fund, a required minimum distribution (RMD) strategy, as well as enough savings to cover every expense for as long as you live. Financial advisors suggest that you should start building your retirement portfolio from your first paycheck. It also helps to set targets along the way. This lets you stay focused and gives you an opportunity to modify your portfolio based on your changing needs, inflation, health issues, growing family, etc.
8. Setting Up an Education Fund for Children
Your children’s higher education expenses can drill a hole in your pocket. Many parents struggle to meet these costs, but systematic planning in a 529 plan or a similar account can be an effective way to save money. You can either save up to cover the entire cost of your child’s education or split the expenses with a student loan. It also helps to regularly discuss these matters with your children, to be on the same page as them. Either way, saving the required sum is a major milestone in the journey to monetary freedom for parents.
9. Having a Diversified Investment Portfolio
Achieving all other milestones becomes easy with sound investments. A well-diversified portfolio that has a balance of aggressive and passive instruments, as well as long-term and short-term investments, can be a sound strategy to create wealth. Paying off your debt and saving for a rainy day are essential things but if you want to increase the value of your money, you must invest it. A combination of stocks, bonds, real estate, precious gold, foreign investments, etc. can deliver good returns over time.
10. Aiming for Complete Financial Independence
Financial independence is often misunderstood as the ability to just pay your bills. In reality, it is so much more. True financial independence is when you are not just able to comfortably cover the costs of essential needs, but also luxurious expenses. This can include indulging in expensive jewelry, travel trips, costly artefacts, etc. It is a state where you no longer rely on debt to cover your purchases. Although difficult to achieve, this is the final milestone of financial freedom.
To Sum it Up
Everyone’s life and approach to it are different. These milestones may not suit everyone. It may also take you longer to achieve a particular milestone than your peers. However, the important thing to remember is your final goal. Moreover, methodical strategies and timely assistance from experts can help you be financially independent. Regardless of whether you are starting out on this journey or find yourself stuck in the middle, you can reach out to financial advisors for professional advice.